Cheer for Man U. Skip the IPO

By Jack Hough

Investors will soon have a chance to bet on a repeat of Manchester United’s astonishing stock market run that ended six years ago.

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When the English soccer club first floated shares on the London Stock Exchange in 1991, it had a market value of about 47 million British pounds. Fourteen years later it was bought out by the family of Malcolm Glazer for 790 million pounds (about $1.3 billion). That’s a 17-fold increase, versus a fourfold increase during that stretch for the FTSE 250 index of midsize London-listed companies.

The Glazer family is now planning to raise $1 billion in a Singapore stock offering this year, reports the Wall Street Journal. Manchester’s winning stock record aside, investors should view the new offering with caution, for at least five reasons.

First, the company’s rapid rise in value during its London listing years is owed in part to its humble start. So weak was investor demand in the summer of 1991 that half the offering was left with the underwriters. The stock lost more than one-quarter of its value in its first month. The Manchester Evening News called the deal “disastrous.” The lead underwriter issued a “sell” recommendation. The money troubles within the sport were so great that The Independent summed things up with a late August report titled, “Football Poised on the Precipice of Financial Ruin.”

Today, Manchester United is likely the world’s most valuable sports team. Earlier this year Forbes valued the team at nearly $1.9 billion. That’s a smidgen more than its value for the Dallas Cowboys and New York Yankees, the most valuable teams in American football and baseball. The Singapore offering could imply a market value of $2.4 billion, Forbes speculates. That would mark an impressive gain for the Glazers, but it wouldn’t necessarily set the team up for the fast financial growth of years past.

Second, according to research, long-term studies suggest that initial stock offerings in general tend to underperform. After all, they’re based on the willingness of highly informed investors to part with a portion of their stake.

Third, the Glazers chose Singapore over Hong Kong for the stock offering so they can use a dual-class structure. Such structures are generally used to sell an economic stake without giving up much a say in how the company is run. For long-term investors, those terms aren’t ideal. For one thing, they can create a barrier to future takeover offers.

Fourth, the reason Manchester was looking toward Asia to begin with could be that investors and consumers there are paying top dollar for new issues and posh brands, and the Manchester offering will be both. But all that demand bodes poorly for returns once the stock becomes available to the public.

Fifth, soccer clubs make lackluster investments in general. The Dow Jones Stoxx Europe Football index, which covers the 23 soccer teams publicly traded in and around Europe, has increased 53% since 1992. The S&P 500 index has tripled since then.

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